2012 Global Market report - NAI Global

Overall, the Canadian economy is proving resilient in a challenging and volatile global
environment, making Canadian cities a attractive place to do business or invest in the
commercial real estate sector.
European Overview
The European economies, particularly those in the eurozone, continue to face unresolved
problems relating to the debt crisis and the imbalance between national economies. As
the year progressed, the eurozone stumbled from crisis to crisis: prospects of default by
the Greek government, ultimately resulting in the appointment of a coalition government;
quickly followed by the announced resignation of the Italian Prime Minister and a more
severe package of austerity measures. Concern continues with respect to the underlying
stability of the economies of Portugal, Italy, Ireland, Greece and Spain (PIIGS). Through
November, the latest ‘Grand Plan’ produced by the eurozone leaders has been criticized
by the US Treasury and the International Monetary Fund (IMF) and is inadequate to solve
the debt crisis. There is a widespread feeling that the politicians’ solutions are too little,
too late. The limited austerity measures introduced to date have led to civil unrest in
several European countries, and Europe’s politicians are nervous that the necessary
measures will not garner electoral support. The general uncertainty has led to significant
equity market volatility in Europe. There is continued speculation that the eurozone could
break up with the attendant chaos which would ensue.
Economic forecasting against this background is challenging at best. The Economist’s poll
of forecasters currently shows growth of 1.6% in the eurozone area for 2011, and 0.6%
for 2012. Growth in the two largest economies is expected to decline sharply in 2012
(Germany from 2.8% in 2011 to 1% in 2012, France from 1.6% to 0.8%) with the UK
effectively flat-lining (1% in 2011 to 1.3% in 2012). Inflation continues to increase (eurozone
2010: 1.9%; 2011: 2.6%; current UK figure: 5.2%) and unemployment has risen to 10%
across the eurozone. On a more positive note, the latest industrial production figures for
the eurozone show a year-over-year increase of 5.3% (August 2011). Interest rates remain
low, with the European repo rate of 1.25%. The UK base rate is 0.5%, but quantitative
easing is still deemed necessary by the UK, even after £200 billion has been ‘printed.’
The property investment markets in Europe, with few exceptions, reflect the macro
economic uncertainties. The damaging affect of inflation remains a concern across the
eurozone with many investors worried that, on average, property rents will be unable to
exceed inflation rates over the next five years. Generally, investors have sought security,
and activity has focused on prime properties (i.e. the best buildings in the best locations
with long-term leases to financially strong tenants). Such assets are in short supply while
the weight of money has led to pricing at boom levels. Europe’s secondary and tertiary
markets remain weak with low levels of activity. However, generally raising new equity
remains a concern and challenge for many investors.
Investment activity across the continent has remained broadly flat in EMEA on a yearon-year
basis despite significant increases in Germany and Scandinavia. Yields have
been stable reflecting the strong German and Nordic volume combined with select UK
trophy acquisitions. Central and Eastern Europe has attracted yield-seeking investment.
The most popular targets for cross-border investment are London and Paris where prime
yields are 4% and 4.75%, respectively.
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